Retirees, Take Charge of Your Retirement Income and Expenses
©Shane Flait 2010

To get the most for your buck, you need to take charge of your income and expenses - maximize the former and minimize the latter. Knowing the statistics of retirement incomes can help you understand where you stand compared to others.

This article shows how retirement income breaksdown among retirees overall. Then I warn you to take action to reduce your expenses so you can go farther on less income.

Retirement income statistical breakdown

The three retirement income sources are social security, pension, and your savings. With so many us ‘under-funded’ for retirement, we may want to do some part time work to supplement our ‘retirement’ income.

According to the Social Security Administration, more than 9 out of 10 individuals age 65 and older receive Social Security benefits, but most retirees also rely on other sources of retirement income.  A 2006 breakdown of percentage of income sources in retirement gave:

·        Social Security – 38.6%

·        Pensions – 19.7%

·        Savings and Investment  – 12.6%

·        Work Earnings - 26.3%

·        Other – 2.7%

The maximum possible social security income back in 2007 was $2116 per month if you started receiving it at your full retirement age (FRA). However, whatever your FRA benefit is, it’ll be reduce if you retire early – between age 62 and your FRA.  It’ll also be reduced if you earn above a Social Security-defined threshold income while you’re under your FRA.

Your defined benefit pension may give you a fixed income; perhaps yours has a cost of living adjustment (COLA).

Your savings are composed of your savings accounts and your defined contribution plans – 401(k), IRAs, etc. You’ll want to choose the best way to convert these to income. Possibilities include converting them to an annuity, another form such as an IRA, or Roth IRA, and devising your own withdrawal procedure that ensures that your savings will last as long as you.

Control your expenses

Some advisors say your retirement expenses can be covered by about 75% of your pre-retirement income comfortably. This assumes that some 25% of your pre-retirement income went to work and its associated taxes, transportation and clothes - and savings toward retirement.

I think you can lower your expense much more than this. But you must make a concerted effort to lower your expenses yet still enjoy a lifestyle you favor.

Controlling your expenses helps prevent them from robbing too much of needed income. You can categorize your expenses under essentials, debts, taxes, and enjoyment. Essentials cover your food, housing, and transportation. Housing and transportation may have more inexpensive alternatives you can choose from.

Debts such as mortgage, car, and credit card payments should be reduced as much as possible. Paying off these loans is often the best way to handle them. Downsizing your material possessions is important in these first two expense categories.

Taxes are pretty much dependent on how you choose to handle your distributions from savings and what tax category your savings are in – tax deferred, taxable or tax free (such as a Roth IRA).

Part-time work can produce a very high penalty on your efforts if they diminish your social security benefits –if you receive them before your FRA.

With your expenses minimized, you can better plan on the travel and enjoyments that you’ve set aside for your retirement years.

 Shane Flait is a writer and educator. Get more info at www.EasyRetirementKnowHow.com